Senate Committee Moves Tax Plan Toward Passage

Full Senate chamber may give initial approval today

RALEIGH – Senate tax writers stepped closer Monday to reform proposals adopted by their House counterparts. The Senate Finance Committee’s actions lifted hopes that a compromise could be pieced together before the General Assembly adjourns this summer.

“Today I am presenting a further compromise tax reform plan that resolves the vast majority of the differences that were voiced and concerns that were voiced by members of the House,” Senate President Pro Tem Phil Berger, R-Rockingham, said Monday as he presented the plan to the committee.

The new plan, which the committee approved and is expected to reach the Senate floor today for a vote, finds common ground with the House plan on several key issues. Those include expanding the sales tax to cover additional services, but not expanding them to include a broad base of professional services that have not paid sales tax previously.

It also would allow for some itemized deductions, such as unlimited charitable contributions.

The Senate plan would let tax filers take up to $15,000 in state income tax deductions for mortgage interest and property tax on real estate. The previous Senate version did not allow those deductions. The House version caps those deductions at $25,000.

It would establish a flat rate for the personal income tax at 5.75 percent. The House version sets the flat tax rate at 5.9 percent. Previously, the Senate had supported reducing the rate to 5.25 percent by 2015.

Currently, the rate is between 6 percent and 7.75 percent, depending on income.

The new Senate version still would eliminate the corporate income tax, as in a previous version, but the current proposal would phase out the tax over a longer period. The earlier Senate version would have ended the tax by 2017. The current proposal would phase it out by 2018. The House plan would reduce the corporate income tax to 5.4 percent by 2018.

Currently, the corporate income tax rate is 6.9 percent.

Sen. Josh Stein, D-Wake, opposed the plan’s treatment of lower-income residents. Stein said the proposal would give one-third of the benefit of the income tax cut to the wealthiest 1 percent of North Carolinians.

“I just don’t think this is a sound way of doing fiscal policy in North Carolina,” Stein said.

Berger said the proposal still would provide an additional $600 million to provide for growth in government during the 2014-15 fiscal year.

“It is my view that this is enough,” Berger said.

Sen. Floyd McKissick, D-Durham, had qualms with the plan’s reduction in sales tax refunds that would go to nonprofits, including nonprofit hospitals.

“You’re talking about a devastating impact to a major institution,” McKissick said, referring to Duke Medical Center.

Sen. Tom Apodaca, R-Henderson, said the bill would move the state’s tax policy in a direction that would encourage economic growth.

Economic developers like seeing lower corporate income tax rates, Apodaca said. “I think we’re on the right path,” he said.

Barry Smith (@Barry_Smith) is an associate editor of Carolina Journal.